Panama Papers: How the Seychelles saved Syria

Syrian companies close to the government created shell companies in the Seychelles to avoid global sanctions [EPA]

Note: Lawyers for Morgan Additives Manufacturing Co contacted Al Jazeera on April 11, 2016, to inform us that designated individual Wael Abdulkarim resigned as a director of the company on December 30, 2014, and that Morgan is at an advanced stage in challenging its designation by the US Office of Foreign Assets Control.

Against the backdrop of recent territorial gains, the cessation of hostilities and a peace process in Geneva that is rumbling along, President Bashar al-Assad seems more secure than ever after five years of conflict in Syria.

When people ask how he managed to stay in power despite the country having its economy collapse in half, hundreds of thousands killed, one in two Syrians being forced from their homes and the conflict dragging in four of the five UN P5 members of the Security Council, you wouldn't necessarily think about the Seychelles.

Yet as the Panama Papers, the biggest leak in global history, has shown, the idyllic archipelago of 115 islands in the Indian Ocean off East Africa has played its part in keeping Assad in the Presidential Palace in Damascus.

Inside Panama Papers: How the rich hide their money

What this demonstrates is that what appears from a distance to be an insular, authoritarian regime far more proficient in the tools of medieval warfare than modern capitalism, has actually used the levers of globalisation well to protect its interests.

Evasion of sanctions

What the 11.5 million leaked documents reveal is that three Syrian companies close to the government - Maxima Middle East Trading, Morgan Additives Manufacturing and Pangates International - used the already infamous Panama-based law firm Mossack Fonseca to create shadow or shell companies in the Seychelles to avoid the increasing pressure of global sanctions.

Considering how near the regime was to collapse before the Russian intervention, this evasion of sanctions is fairly significant. The Panama Papers suggest it paid for fuel that kept Syria's Air Force helicopters and airplanes in the air.

Modern tactics of moving money through tax havens, loopholes and front companies allowed for pre-modern tactics of dropping barrels filled with explosives on urban areas.

Modern tactics of moving money through tax havens, loopholes and front companies allowed for pre-modern tactics of dropping barrels filled with explosives on urban areas.

Another way of looking at it is that tax-dodging has cost lives.

The state and nature of Syria's economy was among the triggers of the conflict back in 2011. David Butter's major Chatham House report into the Syrian economy outlined how "economic grievances were an important factor underlying the uprising against the Assad regime".

Aron Lund, from Carnegie, explained that "for decades, the Syrian regime has been mired in corruption, benefiting from the exploitation of state regulations, bribery, and organised crime at every level of the system".

Bashar al-Assad's presidency saw an opening up of the Syrian economy with the introduction of private banking and a stock exchange among a huge raft of changes.

Yet as the renowned Syria scholar Raymond Hinnebusch wrote back, in 2012 the pressures of privatisation led the Syrian leadership to appropriate public sector assets for themselves, to enrich presidential families and ministers and private investors allied with them in "networks of privilege".

Network of privilege

Nowhere is this network of privilege more apparent than in Assad's maternal cousins Rami and Hafez Makhlouf. Some estimates put their worth at $5bn before the war, with control of up to 60 percent of the Syrian economy.

Syrian President Bashar al-Assad [AP]

They have been the target of international sanctions, including US sanctions, since 2008 and 2007 respectively, and the EU since 2011, suspected of controlling key gateways to Syria's oil and telecoms business.

Yet via a firm in Panama, the Makhloufs were able to continue to operate.

Frederik Obermaier, co-author of the Panama Papers story and an investigative reporter at the German newspaper Suddeutsche Zeitung, told Democracy Now: "they [Mossack Fonseca] realised that he [Makhlouf] was the cousin, and they realised that he was sanctioned, and they realised that he's allegedly one of the financiers of the Syrian regime. And they said, 'Oh, there is this bank who still does business with him, so we should still keep with him, as well'."

A focus on the traditional attributes of the economy of the state (ie, its industries, export and imports, etc) needs to be complemented by an understanding of the economy of the regime and the networks of privilege and corruption that comprise its core.

What has happened in Syria is that a corrupt economy became a corrupt war economy that was able to take advantage of a system blown open by the Panama Papers.

It's worth remembering that this is not the first leak to embarrass the regime. Another set of leaks, emails from 2011, showed Minister of Presidential Affairs Mansour Azzam sending Assad potential options for Russian private jets among rumours of an exit strategy being put together.

It would appear that Assad is no longer in urgent need of an exit strategy. However, he could use the private jet to visit the Seychelles or Panama to thank those who have helped him to remain in power.

The Panama Papers have shone a light on the economic activities of the regime that have stayed for too long in the shadows and, with the amount of information leaked, we know that there is lots more to come.

James Denselow is a writer on Middle East politics and security issues and a research associate at the Foreign Policy Centre.

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.